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Updated By Peter Strack on March 11, 2026
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Investment
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Artificial Intelligence is not just another technology cycle. It is a force that will strengthen some companies while making others irrelevant.
For investors, this creates a very real and uncomfortable question:
Which companies will AI make more profitable — and which companies will it replace entirely?
The challenge is that no one knows the answer yet. But markets tend to react quickly when uncertainty about future earnings appears. When investors begin to question whether a company’s business model is durable in an AI-driven world, valuations can change dramatically.
Understanding how that happens is important.
For investors, this creates a very real and uncomfortable question:
Which companies will AI make more profitable — and which companies will it replace entirely?
The challenge is that no one knows the answer yet. But markets tend to react quickly when uncertainty about future earnings appears. When investors begin to question whether a company’s business model is durable in an AI-driven world, valuations can change dramatically.
Understanding how that happens is important.
1. P/E Multiples Compress
The price-to-earnings ratio reflects how much investors are willing to pay for a company’s profits. When investors feel confident that earnings will grow for many years, they are comfortable paying higher multiples.
But if investors begin to question whether AI could disrupt those earnings, they demand a higher return. That means paying less for the same earnings — which pushes valuations lower.
But if investors begin to question whether AI could disrupt those earnings, they demand a higher return. That means paying less for the same earnings — which pushes valuations lower.
2. Revenue Multiples Decline
Many growth companies are valued based on revenue rather than profit. These valuations assume the business will continue to grow and eventually generate strong earnings.
However, if AI introduces uncertainty around whether those revenues are sustainable, investors often reduce the revenue multiple they are willing to pay.
A company that once traded at a high multiple of revenue can see that multiple fall quickly if its long-term relevance comes into question.
However, if AI introduces uncertainty around whether those revenues are sustainable, investors often reduce the revenue multiple they are willing to pay.
A company that once traded at a high multiple of revenue can see that multiple fall quickly if its long-term relevance comes into question.
3. The Cost of Capital Rises
Another key factor in valuation is the cost of capital, often referred to as WACC (Weighted Average Cost of Capital). This represents the return investors require to take the risk of investing in a company.
When perceived risk increases, investors demand a higher return. That higher required return means future earnings are discounted more heavily when calculating today’s value.
Even if a company’s current earnings remain strong, its valuation can fall if investors are less confident those earnings will continue long into the future.
When perceived risk increases, investors demand a higher return. That higher required return means future earnings are discounted more heavily when calculating today’s value.
Even if a company’s current earnings remain strong, its valuation can fall if investors are less confident those earnings will continue long into the future.
The Real Divide: AI Winners vs. AI Casualties
Artificial Intelligence will undoubtedly create enormous opportunity. Many companies will become more productive, more scalable, and more profitable by adopting AI.
But at the same time, some business models may face real pressure if AI automates tasks that once required people, software, or services.
For investors, the challenge is no longer simply identifying good companies. The real challenge is identifying which companies AI will amplify and which companies AI may quietly eliminate.
But at the same time, some business models may face real pressure if AI automates tasks that once required people, software, or services.
For investors, the challenge is no longer simply identifying good companies. The real challenge is identifying which companies AI will amplify and which companies AI may quietly eliminate.
A New Lens for Investing
This does not mean investors should panic or abandon markets. But it does suggest that portfolios may need to be viewed through a new lens.
